The National Electricity Market is in bad health and wholesale change is needed, but recovery is on the horizon.
A new Energy Security Board report has found electricity prices have increased by around 80 to 90 per cent in real terms over the last decade, and ???bill shock’ is hitting both residential and business customers.
It called for widespread change in the energy market, supported by strong policy, to ensure the NEM can transition to a new energy future driven in part by increased renewables.
“The pattern of the transmission grid in the NEM must change,” the report said.
“The grid was designed in the last century to run from large coal-fired generators to the load in the cities. It must now be reconfigured so that it runs from renewable energy zones to the cities.”
The ESB outlined the National Energy Guarantee as one of the important developments in the sector but noted that it is not a panacea for all of the electricity sector’s woes.
“The National Energy Guarantee is not designed to solve all the reliability and system security issues in the NEM,” the ESB said.
“Modifications to existing tools may be needed, and new mechanisms may have to be introduced.”
Federal Energy and Environment Minister Josh Frydenberg said the NEM is facing the most challenging period in its history.
“The report finds the NEM faces numerous challenges as it goes through its greatest change since its development in the 1990s, including a tight supply-demand balance, a marked changed in the generation mix towards intermittent sources and rapid technological change,” Mr Frydenberg said.
“The ESB finds while there is much work to be done, the situation is improving as a result of measures put in place by the Turnbull Government, the COAG Energy Council and the energy market bodies.”
The ESB also broached the subject of ongoing carbon policy uncertainty, an issue raised earlier this week in the federal government’s climate change policy review.
The ESB put part of the blame squarely on successive federal governments’ inability to put decisive emissions policies in place.
“One reason for this unwelcome situation is a decade of uncertain policy about emissions reduction and what this means for the NEM in particular,” the report said.
“Despite international commitments to emissions reductions, no settled policy has been possible at the federal level.”
The NSW energy taskforce also released a report this week, urging the states to build their own clean energy targets.
“While further development of the National Energy Guarantee is proceeding for the COAG Energy Council, for the purposes of this report the Taskforce assumes that some form of market mechanism that addresses both dispatchability and emissions reduction will be agreed by the National Electricity Market jurisdictions,” the NSW report said.
“In any case, a mechanism will be needed and NSW should continue to advocate this nationally.”
The Grattan Institute’s Energy Director Tony Wood told Fairfax Media there was little surprising in the ESB’s report, but by setting out the major issues it puts them on the front foot to solve the ongoing energy crisis.
“Given that the ESB was a primary recommendation of the Finkel Review and one of its first tasks was to produce a Health of the NEM report, it’s hardly surprising it had this view as if it were healthy it wouldn’t need the ESB in the first place,” Mr Wood said.
“It sets out the challenges around the NEM; if the role of the NEM is to deliver affordable and reliable energy it, and now we’re imposing an emissions objective as well, it’s clearly not doing it,” he said.
“They’ve admitted the NEG need more work, although I think they’re a bit light in relation to the role of network regulations in impacting on all these issues.”
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